401K or bust...

[blackshoe]

Although I am pretty sure that this isn't your point, this has got me to wondering if "ordinary folks", whoever they are, still buy government bonds. My parents bought them, some of them in my name. My uncle would sometimes send me a $25 bond, quite a bit in the 1940s, on my birthday. They, the bonds not my uncle and parents, matured sometime when I was in graduate school if I remember correctly. Do people still do this? It seems like an historical relic, like making Mayday cards and baskets in elementary school to bring home to our mothers. Maybe I am just out of touch.

From Wikipedia:

 

Savings bonds are debt securities issued by the U.S. Department of the Treasury to help pay for the U.S. government’s borrowing needs. U.S. savings bonds are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government.

and

 

In 2002, the U.S Department of the Treasury's Bureau of Public Debt made Savings Bonds available for purchasing and redeeming online. Finally, on January 1, 2012 banks and other financial institutions terminated their sales of bonds. Currently, Americans can only buy U.S. Savings Bonds online at a government website.

and also this overview:

 

•Minimum Purchase: $25

 

•Maximum Purchase: $30,000 per person per year

 

•Interest: 90% of 6-month average of 5-year Treasury security yields, added monthly and paid when the bond is cashed

 

•Minimum Term Of Ownership: 12 months

 

•Early Redemption Penalty: Forfeit three most recent months' if cashed before 5 years

 

When I was at boot camp in the Army (1967), we were "encouraged" to allot some portion of our pay to the purchase of these bonds. So, at Ft. Jackson, when they suggested this, I signed up for a $75 bond - which cost me some $40 a month, almost half of my base pay. Okay with me, I didn't figure I was going to need much cash while in boot camp anyway. But then after a week at Ft. Jackson, some of us were sent to Ft. Gordon, due to "overcrowding". There, some LT got up in front of us and told us the paperwork for our bonds was "lost" and we would have to resubmit it. So I did. Payday came around and I got five bucks. Why? Because that sonofabitch lied - and I ended up with two $75 bonds taken out of my pay. It took three months to get that straightened out. Fortunately for both of us, I never saw that LT again.

[blackshoe]

Many years ago, I read a "how to manage your money" book that suggested the following rules:

 

1. Establish an "emergency fund" of three to six months' expenses in highly liquid investments (like a savings account).

2. Establish a "base fund" of ten percent of your net worth. Revise it (hopefully upwards) every year. Otherwise, never touch it.

3. Allocate ten percent of your income to your investment fund every month.

4. Never borrow to pay day to day expenses.

5. Never borrow to buy depreciating assets (such as a car).

6. Borrow to buy appreciating assets (such as real estate) only when the expected return on the investment exceeds the interest rate on the loan.

 

I wish I had always followed this advice. :P

[Al_U_Card]

From my link above:

 

Debt Held by the Public - Foreign governments and investors hold about half of the nation's public debt. A little over one-fifth is held by other governmental entities, like the Federal Reserve and state and local governments. Fifteen percent is held by mutual funds, private pension funds, savings bonds or individual Treasury notes. The rest is held by businesses, like banks, and insurance companies and a mish-mash of trusts, businesses and investors. Here's the breakout (as of March 2013):

Foreign - $5.724 trillion

Federal Reserve - $1.794 trillion

State and Local Government, including their pension funds - $703.5 billion

Mutual Funds - $946.4 billion

Private Pension Funds - $457.7 billion

Banks - $341.4 billion

Insurance Companies - $263.3 billion

U.S. Savings Bonds - $181.7 billion

Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) - $1.497 trillion.

 

So the countries get their credit from their workers (taxes) and balance of payment trade suplus? I wonder where the banks get theirs? Surely from savings deposits....

[sfi]

This certainly proves that having no debt causes depressions.

 

That's not a conclusion I or the article drew.

[1eyedjack]

http://pubs.acs.org/appl/literatum/publisher/achs/journals/content/jcisd8/2008/jcisd8.2008.48.issue-1/ci700332k/production/images/medium/ci700332kn00001.gif

 

Would someone explain to me what are the units of the vertical axis supposed to be? Deaths per mile? per 100 miles? thousand? thousand deaths over the entire US?

[Vampyr]

Would someone explain to me what are the units of the verticle axis supposed to be? Deaths per mile? per 100 miles? thousand? thousand deaths over the entire US?

 

My concern on seeing this post was that it was too late for nominations for Post of the Year.

[1eyedjack]

My concern on seeing this post was that it was too late for nominations for Post of the Year.

 

There’s always next year.

[jjbrr]

Would someone explain to me what are the units of the verticle axis supposed to be? Deaths per mile? per 100 miles? thousand? thousand deaths over the entire US?

 

per 100,000 population afaict

 

eta: lolwiki

[32519]

Ever figured out how much your government siphons off of your hard earned money? Here is but a short list of the obvious areas where you keep contributing to the government coffers –

1. During the month you contribute via:

a. VAT or GST (whichever is applicable in your country) on most of what you buy

b. Sin tax on booze and cigarettes

c. Fuel tax/ levy every time you fill up

d. Toll fees every time you pass through a toll-gate (Excuse me, but why must I pay a third time for the use of public roads? Is that not supposed to be covered by the fuel levy and my monthly/annual tax?)

e. (Tax on luxury items/imports are normally larger items and not something we buy every month)

2. At the end of the month, PAYE gets withheld from your salary and handed over to the tax authorities.

3. Annually you need to submit your tax return. The lucky ones get a tiny refund. The unlucky ones end up making another substantial contribution to the government coffers.

 

But that is only part of the story.

4. Every month a portion of your salary gets paid over to your retirement funding administrator who invests it on your behalf (after taking a substantial commission for themselves to do so). In my own country it is compulsory for these retirement funds to invest a % of what they administer into some or other government bond. So there the government gets use of some more of your money.

5. Many of you who still have some surplus money left over after meeting all your other obligations “dutifully” buy more of these government bonds.

 

What is the VAT/GST rate in your country? In my own country the rate is currently 14%.

How much of the pump price you pay for fuel is loaded with all sorts of government levies? In my own country well over a third of the price is tax.

 

The government fleeces us around every corner and still they somehow manage to run up a national debt, for the USA in excess of USD 17 trillion. Somehow we manage. Somehow we survive. If we don’t we get liquidated by our creditors. Check out this list again List of Countries by External Debt. Worldwide governments are effectively bankrupt. A fresh trigger that sparks a collapse/recession/depression does not leave many of them with any wriggle room to stimulate their economies again. I fear the consequences.

[barmar]

It would be ridiculous to suggest that anyone can foreclose on Yosemite National Park - unless you know of some mortgage holder on that property that I've never heard of.

My point exactly.

[barmar]

You're basically arguing that government debt is necessary because you can't imagine a society without it. Sorry, but that's a silly argument.

It's kind of like the "too big to fail" argument. You can argue all you want that there shouldn't be any companies we're so dependent on, but the fact is that we are. And there's no practical way to get out of this situation, so you have to figure out how best to live with it.

[32519]

How many of you have heard of "The Fragile Five", Turkey, South Africa, India, Indonesia and Brazil, the emerging economies with the biggest overseas financing needs.

How much money have you got invested there?

[32519]

How many of you follow The Sovereign Risk Index?

[Al_U_Card]

It's kind of like the "too big to fail" argument. You can argue all you want that there shouldn't be any companies we're so dependent on, but the fact is that we are. And there's no practical way to get out of this situation, so you have to figure out how best to live with it.

I gather that this is where the "bail-in" concept originated and was put to "one-time only" use in Cyprus. It is going into the Canadian budget for this year as well as in several other countries. Not so much "too big to fail" as "they still have some money that we can squeeze out of them". :blink:

[onoway]

It's kind of like the "too big to fail" argument. You can argue all you want that there shouldn't be any companies we're so dependent on, but the fact is that we are. And there's no practical way to get out of this situation, so you have to figure out how best to live with it.

what companies do you consider "too big to fail"? I can't think of any that people couldn't manage to adjust to being without unless ,perhaps, some companies involved with medical stuff, and even then it seems likely that it wouldn't be long before the gaps were filled by other companies.

 

According to reports there are over 200,000 refugees in camps from Syria alone, and 10s of thousands fleeing the violence in the Sudan, and that doesn't consider the others such as the Palestinians and the people in other parts of the world. Some of them are now 3rd generation in refugee camps. What possible acceptable rationale would there be to any of them to tell them that they can't get help because some business enterprise needs the money more because it's "too big to fail and we can't do without them" ? Do you suppose that that value system might conceivably have something to do with the fact that some people would rather tie a bomb around their belly and walk into a crowded shop and blow themselves up than live under those conditions any more?

 

Seems to me that the "competition" laws that many countries have were designed to make sure that no company ended up the only game in town. If governments have reneged on that responsibility then they should do something about fixing the situation, rather than supporting bloated, badly run companies feeding off the taxpayer.

 

The last time the taxpayers in Canada bailed out Air Canada the president who (almost) put them into recievership walked away with an over $600,000 bonus. Rumor has it that this is not an unusual sort of thing to happen. Too big to fail, my foot.

[helene_t]

I used to learn quite a lot from reading the Water Cooler. It has been a while. But today I learned the secret on how to create a unanimous poll.

[billw55]

It would be nice if we could solve the problems that have higher priority than the debt. In fact, I suspect if we addressed them, a side effect would be that we would reduce our deficity. So we shouldn't worry about the debt itself, just work on improving the economy and the debt will take care of itself.

That only works if the people running the government are responsible. Improving the economy will increase revenues, but that by itself won't stop us running a deficit. Our politicians (of both parties) have shown a strong propensity to spend everything they have and then some. More comes in? More spending! New programs! Less comes in? Borrow to maintain spending! It's a double standard that leads to trouble. In my own state (Illinois) we are feeling the pinch of decades of grossly irresponsible spending. Taxes are high, grants are cut, state bills take many months to get paid. Our borrowing costs to maintain all the waste became too high. But I am sure the economics whizzes will explain why this cannot happen to the US government, why it is all OK for Washington to borrow, spend, and waste, how there will never be any consequences no matter how deep we dig. That's what Illinois government thought too.

 

I think we need a policy whereby we run a balanced budget on something like a ten year basis. Sure, there will be times when revenues decline and we run a deficit for a few years. But we should balance that with surpluses in good years. Sadly, anymore no politician looks beyond his/her next election. They don't give a rat's ass what happens after they are out of office. Or even while they are in office, unless it risks their reelection. Short term thinking and no responsibility are a bad recipe.

[Vampyr]

What is the VAT/GST rate in your country? In my own country the rate is currently 14%.

 

Here it is 20%. And I believe that VAT has normally been paid (on various portions of the product) several times before an item or service is delivered to the consumer. But I am not sure exactly how this works.

 

How much of the pump price you pay for fuel is loaded with all sorts of government levies? In my own country well over a third of the price is tax.

 

In this country 60% is tax.

[Winstonm]

That only works if the people running the government are responsible. Improving the economy will increase revenues, but that by itself won't stop us running a deficit. Our politicians (of both parties) have shown a strong propensity to spend everything they have and then some. More comes in? More spending! New programs! Less comes in? Borrow to maintain spending! It's a double standard that leads to trouble. In my own state (Illinois) we are feeling the pinch of decades of grossly irresponsible spending. Taxes are high, grants are cut, state bills take many months to get paid. Our borrowing costs to maintain all the waste became too high. But I am sure the economics whizzes will explain why this cannot happen to the US government, why it is all OK for Washington to borrow, spend, and waste, how there will never be any consequences no matter how deep we dig. That's what Illinois government thought too.

 

I think we need a policy whereby we run a balanced budget on something like a ten year basis. Sure, there will be times when revenues decline and we run a deficit for a few years. But we should balance that with surpluses in good years. Sadly, anymore no politician looks beyond his/her next election. They don't give a rat's ass what happens after they are out of office. Or even while they are in office, unless it risks their reelection. Short term thinking and no responsibility are a bad recipe.

 

 

Of course there is waste in federal government spending and that should be corrected as much as possible but that does not get close to lowering the debt. The annual deficit spending leads that lead to debt is comprised of three main ingredients: social security, medicare, and defense spending.

 

The debt is mostly made up of war costs that have never been paid, going all the way back to Vietnam. If you really want to balance the budget, stop going to war.

[1eyedjack]

Here it is 20%. And I believe that VAT has normally been paid (on various portions of the product) several times before an item or service is delivered to the consumer. But I am not sure exactly how this works.

 

There are exceptions, such as when a business makes a mixture of taxable and exempt supplies, but for the most part any VAT incurred by an intermediary business in the chain of supply can be reclaimed by that business, so that in the end it is just the final 20% that gets collected by the Exchequer.

[billw55]

Of course there is waste in federal government spending and that should be corrected as much as possible but that does not get close to lowering the debt. The annual deficit spending leads that lead to debt is comprised of three main ingredients: social security, medicare, and defense spending.

 

The debt is mostly made up of war costs that have never been paid, going all the way back to Vietnam. If you really want to balance the budget, stop going to war.

This is a policy I could support.

 

Even so, we must accept that once in a while, war is necessary. When we are attacked, we must fight. When another nation declares war on us by statement or by action, we are at war whether we want it or not. We could have stayed out of Vietnam and Iraq. World war 2 and Afghanistan, not so much. World war 1? Not sure about this one, maybe a historian can help.

 

But, critically, war debts need not be permanent. We successfully disposed war debts from the two largest wars in history. It can be done - proof by example. So what has changed?

[32519]

Our politicians (of both parties) have shown a strong propensity to spend everything they have and then some. More comes in? More spending! New programs! Less comes in? Borrow to maintain spending! It's a double standard that leads to trouble. In my own state (Illinois) we are feeling the pinch of decades of grossly irresponsible spending. Taxes are high, grants are cut, state bills take many months to get paid. Our borrowing costs to maintain all the waste became too high. But I am sure the economics whizzes will explain why this cannot happen to the US government, why it is all OK for Washington to borrow, spend, and waste, how there will never be any consequences no matter how deep we dig. That's what Illinois government thought too.

 

No politician looks beyond his/her next election. They don't give a rat's ass what happens after they are out of office. Or even while they are in office, unless it risks their reelection. Short term thinking and no responsibility are a bad recipe.

 

This is something I only recently found out in my own country.

 

Ever since the ANC took over governing the country, many local governments/municipalities have been placed under administration (controlled by our Inland Revenue Services) because they were declared bankrupt and so unable to provide even the most basic services. All of them had managed to run up huge bank overdrafts before the IRS stepped in. Now as a private individual, my bank has limited my bank overdraft to the risk level that the bank deemed me worthy. So I asked myself, “Why does the same overdraft criteria not apply to all these bankrupt local governments/municipalities? How were they able to run up these huge overdrafts?”

 

Answer: Apparently our IRS has given security to the banks, guaranteeing that any overdraft by a defaulting local government/municipality would be paid for by them. This policy has led to an increase in corruption never seen before. Tax payers money is being siphoned off left, right and centre. Our print media is exposing the level of corruption and those involved (including our president) every day in the newspapers. Only now that the most recent polls indicate that the ANC support in our upcoming elections is likely to drop to 53% (from a high of nearly 70% in 2004), are they making hollow promises to stem the tide. Only now that the black middle class is starting to desert them are they promising to put in more effective measures to stop the corruption. We will see.

 

Maybe Illinois is doing the same, knowing that a higher authority in your country will stand in for any untoward debt?

[barmar]

what companies do you consider "too big to fail"? I can't think of any that people couldn't manage to adjust to being without unless ,perhaps, some companies involved with medical stuff, and even then it seems likely that it wouldn't be long before the gaps were filled by other companies.

It's not I who makes these decisions. But during the 2008 financial crisis, huge financial institutions like JP Morgan Chase and AIG were considered too big to fail, even though they caused the crisis in the first place. The government has also bailed out most of the car companies.

 

If a company like GM went out of business, huge numbers of workers would lose their jobs, dealer franchises would go out of business because they had no cars to sell, and there would be ripple effects down the supply chain. The workers without jobs would stop paying income taxes, the businesses would stop paying corporate taxes. Yeah, eventually other companies will increase their production to make up for it, and they'll hire many of these workers to build them. But that will take quite a bit of time, and crisis until that happens would probably be much worse than the recession we went into 5 years ago.

 

I'm not an economist, I can't really be sure of the magnitude, this is just my intuitive, lay opinion. But it seemed like most economists were in favor of the bailouts, because the alternative would be much worse.

[Winstonm]

This is a policy I could support.

 

Even so, we must accept that once in a while, war is necessary. When we are attacked, we must fight. When another nation declares war on us by statement or by action, we are at war whether we want it or not. We could have stayed out of Vietnam and Iraq. World war 2 and Afghanistan, not so much. World war 1? Not sure about this one, maybe a historian can help.

 

But, critically, war debts need not be permanent. We successfully disposed war debts from the two largest wars in history. It can be done - proof by example. So what has changed?

 

Tax rates have changed.

[32519]

Does playing the stock market add any actual value to the overall economy?

 

The original purpose (the issuing of shares to raise capital to float a business or to raise new capital to expand a growing business) has long been buried underneath the rampant speculation seen today. A classic example here is the recent listing of Facebook and Twitter. Neither have an actual revenue stream or a projected revenue stream to warrant their market capitalization values. Investors have zero chance of ever receiving a dividend on either of these two shares, yet speculators are buying and selling them every day hoping to make money without doing a days honest work in their lives.